In its March newsletter, Preqin noted that industry guidelines from ILPA have had a “noticeable” impact, according to a study it did along with Dechert. However, it notes that in both the US and Europe, the best performing private equity funds were the least likely to adopt the more significant recommendations in the ILPA Guidelines.
Where the guidelines are having an effect is in the area of fee income offsets, making inroads on terms set by private equity funds. On average, 86% of new funds in 2011 and 85% of new funds in 2012 in the buyout fund sector rebated all transaction fees.
In its 2012 Preqin Private Equity Fund Terms Advisor analysis, Preqin said that there did “not seem to be a significant difference” on average in the treatment of fees regardless of whether transaction, monitoring, directors, breakup or other.
It does see more limited partners requesting management company information, including management fee budgets, as well as management professionals compensation criteria. Fees have generally declined since vintage 2010 funds in all size categories.
For instance in funds under USD 500mn, fees have declined from 2% to 1.99% in 2010 and 2012 respectively; in funds from USD 500mn to USD 999mn, fees have declined in 2011 and 2012 to 1.97% and 1.94% respectively; and in funds over USD 1bn, fees have declined from 1.81% in 2010 to 1.75% in 2011 and 1.72% in 2012 respectively.